Money and Inflation

Play an AI-generated podcast conversation about this lesson

According to the quote by John Maynard Keynes, what is the most subtle and surefire way to undermine the existing basis of society?

Promote social unrest

Overthrow the government

Debauch the currency (correct)

Implement strict economic policies

Based on the information provided, what was the approximate rate of inflation in the United States during the 1970s?

2.4 percent per year

3.0 percent per year

7.1 percent per year (correct)

5.5 percent per year

Which of the following statements is NOT true about the prices mentioned in the passage?

In 2008, the average wage in manufacturing was $19.85 per hour.

In 1970, the New York Times cost $1.50. (correct)

In 2008, the median price of a single-family home was $183,300.

In 1970, the median price of a single-family home was $23,400.

What term is used in the passage to describe episodes of extraordinarily high inflation?

Hyperinflation (C) Signup and view all the answers

Based on the information provided, in which decade did the United States experience the lowest rate of inflation?

1990s (B) Signup and view all the answers

According to the passage, what was the average wage in manufacturing in the United States in 1970?

$3.36 per hour (A) Signup and view all the answers

What is the primary function of money in a complex, modern economy?

To enable more indirect transactions and facilitate trade (A) Signup and view all the answers

What is the key difference between fiat money and commodity money?

Fiat money is established as legal tender by government decree, while commodity money has inherent value (B) Signup and view all the answers

Which of the following best describes a barter economy?

An economy where trade requires a double coincidence of wants between two parties (B) Signup and view all the answers

What is the primary purpose of the U.S. dollar being described as legal tender for all debts, public and private?

To ensure the U.S. dollar is accepted as the medium of exchange in the economy (A) Signup and view all the answers

How does the concept of liquidity relate to the functions of money in an economy?

Liquidity is a measure of how quickly an asset can be converted into the medium of exchange, which is money (B) Signup and view all the answers

Which of the following best explains why a car dealer would quote the price of a car in dollars and cents rather than in terms of another commodity?

Dollars and cents reflect the relative prices of goods and services in the economy (C) Signup and view all the answers

Which of the following is NOT a function of money?

Determining the price level (A) Signup and view all the answers

What is the key difference between the economist's concept of money and the general public's understanding of money?

Economists use money to refer to the stock of assets that can be readily used to make transactions, while the public uses it to refer to how wealthy a person is. (B) Signup and view all the answers

What is the key factor that determines the price level according to the classical theory of inflation discussed in the text?

The quantity of money in the hands of the public (B) Signup and view all the answers

What is the primary reason that people hold money?

To make transactions for goods and services (A) Signup and view all the answers

The text discusses the concept of hyperinflation. Which of the following is NOT a key characteristic of hyperinflation according to the passage?

Significant economic growth and prosperity (B) Signup and view all the answers

According to the classical theory of inflation discussed in the text, what is the relationship between the nominal interest rate and the price level?

An increase in the price level leads to an increase in the nominal interest rate. (A) Signup and view all the answers

What is the key assumption underlying the classical theory of inflation discussed in the text?

Prices are flexible and adjust quickly to changes in supply and demand. (A) Signup and view all the answers

According to the passage, what is the primary purpose of the government's control over the money supply?

To ensure the stability of the price level (C) Signup and view all the answers

What is the primary reason, according to the text, that the classical theory of inflation provides a useful foundation for the short-run analysis of inflation?

It ignores the role of short-run price stickiness. (D) Signup and view all the answers

What is the connection between the government's control over the money supply and the revenue it can generate, according to the text?

The government can generate revenue by increasing the money supply, which is known as the inflation tax. (B) Signup and view all the answers